Meg Heffron, director of Heffron Consulting, said one of these is the carve-out treatment of non-arm\u2019s length income.<\/p>\n
\u201cIf you think about NALI, that is an income in a super fund that is already getting taxed incredibly harshly at 45 per cent. I guess the government looked at this and realised it had a decent tax take on that so it didn\u2019t need to also get Div 296 tax on non-arm\u2019s length income, so that is excluded from the Div 296 earnings.\u201d<\/p>\n
Other types of adjustments are needed to determine earnings for Division 296 purposes. Take for example pooled superannuation trusts (PSTs). Whilst relatively uncommon in the SMSF sector, the law includes adjustments to ensure that income derived via PST structures is appropriately reflected in Div 296 earnings.<\/p>\n
\u201cAlthough I haven\u2019t seen it in years, there are some super funds that invest in pooled super trusts because it\u2019s a tax paid-vehicle where the fund gets the distribution from the trust tax-exempt as there has already been tax paid,\u201d Heffron said.<\/p>\n
\u201cHowever, this is something where the government would want Div 296 tax to pick up income from a pooled superannuation trust.\u201d<\/p>\n
Heffron continued that there are also rules which will impact funds that are entirely supporting retirement phase pensions.<\/p>\n
\u201cIt is not that common that people who\u2019ve got more than $3 million also are entirely in pension. However, let\u2019s imagine Lee, who\u2019s 75 and he\u2019s got a $5 million pension. Now, it could be his account-based pension started within the transfer balance cap and grew enormously. Or it could be he\u2019s got a market-linked pension as these can also be large,\u201d she said.<\/p>\n
\u201cDuring the year, the fund realised a capital gain on the sale of the shares. What we would usually do with someone like Lee is say this is a segregated fund and the whole fund is paying pensions and with segregated funds we just completely disregard capital gains and capital losses.<\/p>\n
\u201cHowever, we do include them for Div 296 purposes. Those of you who prepare super fund accounts know that sometimes this sort of income doesn\u2019t even appear on the tax return. It\u2019s been completely disregarded so now we add it back in.\u201d<\/p>\n
And while the capital gains and losses of a fund that are entirely in pension phase will be counted when determining a fund\u2019s earnings for Division 296 purposes, there is no ability to carry forward capital losses for Division 296 purposes.<\/p>\n
\u201cFor example, if a fund made a $1.2 million gain and a $2 million loss, we can offset them, so there\u2019s no Div 296 earnings coming from those gains and losses, but we can\u2019t carry forward that loss.\u201d<\/p>\n
Heffron added that the key thing to remember is that when it comes to determining whether there are carried forward capital losses to offset capital gains for Division 296 purposes, it is necessary to go back to the fund\u2019s annual tax return.<\/p>\n
\u201cWe\u2019re not running a separate tally for Div 296, so it really matters what happens to a fund\u2019s capital losses for tax purposes. Are they ignored? Are they carried forward? That will affect whether or not we can use them to reduce Div 296 earnings in a future year.\u201d<\/p>\n
\u00a0<\/p>\n
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